Last week the Hong Kong government claimed a victory in its battle to halt the city's epic property bull market. Standard Chartered, Hang Seng Bank and HSBC raised mortgage rates for new home loans, triggering immediate drops in home prices.

In a bid to crack down on speculation that has helped fuel a strong rally in prices since the second half of last year, the State Council has endorsed the People's Bank of China to raise down-payment requirements and mortgage rates for second-home buyers of properties in cities where prices have risen sharply.

Home prices in Hong Kong may fall by 15 to 20 per cent in two years following the increase in mortgage lending rates, an investment bank predicts, but some developers and bankers believe the impact will be small.

Deutsche Bank, which forecast mortgage rates to rise a further 0.75 of a percentage point, said prices could drop by 20 per cent in the coming years.

The decision by HSBC and Standard Chartered to raise mortgage lending rates by 0.25 percentage points should not come as a surprise. Other lenders are likely to follow their lead, as Hang Seng Bank did yesterday.

Wednesday's move by HSBC and Standard Chartered to raise the interest rates they charge on new mortgages was no surprise.

Bankers had warned an increase would be inevitable after the Hong Kong Monetary Authority last month ordered them to increase the amount of capital they hold against new residential mortgages to at least 15 per cent of the loans' value.

Centaline Property Agency said last night that some owners had immediately slashed their asking prices. A 922 sq ft flat in Taikoo Shing was on offer for HK$13 million, a reduction of 7 per cent. Other owners dropped their prices by up to 10 per cent.